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The Slightly Amusing Guide to National Insurance in the UK

Welcome, brave reader, to the wonderful world of National Insurance (NI)! This isn’t just your average tax, oh no—it’s the one that pays for things like your pension and the NHS. And while it’s not the most exciting thing in the world, we’ll try to make it less dull than a rainy Tuesday here in Glasgow. So, grab a cup of tea, and let’s dive in!

What on Earth is National Insurance?

National Insurance is essentially a tax on your earnings that goes towards funding state benefits. Think of it as a ticket to the UK’s “welfare rollercoaster.” It’s a bit like paying into a giant communal piggy bank that helps cover things like the NHS, your State Pension, and other public services.

Why Do We Have to Pay It?

Because the government said so, that’s why. But seriously, paying National Insurance is like contributing to a giant safety net that catches you when you’re old, ill, or out of work. Without it, you’d be left scrambling to knit your own safety net out of bellybutton fluff and old shoelaces.

Who Needs to Pay?

If you’re working and earning more than £242 a week (as of the 2023/2024 tax year), congratulations—you’re on the hook for National Insurance. This applies whether you’re an employee, self-employed, or just someone who enjoys filling out forms.

Employees

If you’re employed, your National Insurance Contributions (NICs) are deducted automatically from your wages. So, no need to worry about it—just watch your payslip shrink slightly every month.

Self-Employed

If you’re self-employed, you’ll need to handle this yourself. But hey, that’s why you became your own boss, right? To fill out more paperwork! You’ll pay two types of NICs:

• Class 2: If your profits are over £12,570 a year, you’ll pay a flat rate of £3.45 a week.
• Class 4: If your profits are over £12,570, you’ll also pay 10.25% on profits between £12,570 and £50,270, and 3.25% on anything above that.

What’s In It For Me?

Ah, the million-pound question! So what do you get in return for your hard-earned cash? Here are the main perks:

The State Pension

This is the big one. Pay enough National Insurance, and when you reach the grand old age of 66 (or whatever it is by the time you get there), you’ll get a weekly payment to keep you in biscuits and daytime TV for the rest of your life.

NHS Healthcare

Free healthcare at the point of use. That’s right, folks—break a leg, have a baby, or need your tonsils out, and the NHS has got you covered. And yes, your National Insurance payments help fund this national treasure.

Maternity Allowance

If you’re self-employed or don’t qualify for Statutory Maternity Pay, you might be able to claim Maternity Allowance. Think of it as a baby bonus for all those sleepless nights ahead.

Unemployment and Sickness Benefits

If you’re out of work or too ill to work, the state may step in with Jobseeker’s Allowance or Employment and Support Allowance. It’s not luxury living, but it may keep the wolf from the door.

How Much Will It Cost Me?

This is where it gets a bit tricky (sorry). But fear not! Here’s a simplified version:

For Employees

• 12% of your earnings between £242 and £967 a week.
• 2% of anything you earn above £967 a week.

Example: If you earn £500 a week, you’ll pay:

• 12% of (£500 - £242) = 12% of £258 = £30.96

For the Self-Employed

• Class 2: £3.45 a week if you earn over £12,570 a year.
• Class 4: 10.25% on profits between £12,570 and £50,270, and 3.25% on anything above £50,270.

Example: If you make £30,000 a year in profit, you’ll pay:

• Class 2: £3.45 x 52 = £179.40
• Class 4: 10.25% of (£30,000 - £12,570) = 10.25% of £17,430 = £1,787.57

Total = £1,966.97. Ouch.

But What If You Don’t Pay?

Aha! You were thinking about it, weren’t you? If you don’t pay, you might not qualify for certain benefits, including the State Pension. It’s like trying to join the club without paying the membership fee—you won’t get in. Also, HMRC has a way of finding out, and trust me, you don’t want them knocking on your door.

On a side note, to qualify for a full State Pension, you must make whatever contributions you are due in each of 35 years before state retirement age if you were born after 2016. They don't have to made in every single year, some years can be missed and then caught up with later. In some cases you can even pay for missed years at one time. Before 2016, different rules can apply; some men must have up to 44 qualifying years. Yes, men, it dates back to when they did all the work and earned all the money. Not my words.

Examples with Income Tax and NI

In my previous guide on Income Tax we looked at how that is calculated. But it's not complete without NI. Here are the same examples again, one for Scotland and another for England showing what tax and NI would be paid If earnings were £150,000. Whilst this is an income the majority of us can only aspire to earning, it does cover all the aspects of income tax showing every tax band, that at this level you don't benefit from a personal allowance and of course NI.

These tables use the 2024/25 tax years. If you do happen to earn £150k and these figures don't match, I am using the standard tax code and assuming no other deductions. Correct at the time of writing but the key here is the way it's calculated whenever you read this.

It's Gross

Importantly, it should be understood that both Income Tax and NI are calculated based on Gross Income, which is £150,000 in this case. You don't deduct your tax, then calculate NI on the remainder or vice versa. Tax is calculated based on £150,000, NI is calculated on £150,000. Harsh huh!

England

Scotland

Final Thoughts

National Insurance might not be the most exciting part of your financial life, but it’s an important one. It’s the price we pay for living in a society where you can get old, sick, or unemployed without ending up in the poor house. Or at least not being entirely penniless.

So, next time you see that deduction on your payslip, take a moment to think of it as your contribution to the great British welfare state. Then, promptly forget about it and go back to dreaming about what you’ll do with your lottery winnings which attracts no tax or NI!